How to be financially savvy when earning over £100,000
Those currently earning over £100,000 are in a unique financial position. While this level of income provides ample opportunities, it also brings with it financial complexities which, if not carefully managed, can erode wealth over the long term.
From tax efficiencies to investment strategies, understanding how to maximise your income is critical to ensure stable finances. In this article, we will explore key financial strategies that high earners can implement, and how Cooper Associates Wealth Management can help you to optimise your financial future.
Maximising your tax efficiency
One of the greatest challenges facing high earners is taxation. Earning over £100,000 means a good portion of your income falls into the higher tax bracket, which spans from £50,271 to £125,140.
Furthermore, once your earning exceeds £100,000, your personal allowance begins to taper down, which effectively creates a 60% marginal tax rate between £100,000 and £125,140.
Strategies to reduce your tax burden
- Pension contributions
Making, or increasing, your pension contributions can help to reduce your overall taxable income, potentially restoring your personal allowance and lowering your tax liability.
- Gift Aid donations
Charitable donations through Gift Aid allow you to claim tax relief, which can make philanthropy a financially efficient decision.
- Salary Sacrifice schemes
Redirecting part of your salary towards benefits such as electric vehicle schemes can help to lower your taxable earnings.
Estate and Inheritance Tax Planning
As your wealth grows, it becomes increasingly important to plan for the future. Without careful planning, you may eventually lose a significant proportion of your wealth to inheritance tax (IHT). IHT is currently set at 40% for estates exceeding Nil-Rate Band (NRB), which is currently set at £325,000. In cases where your main residence is passed to direct descendants (children or grandchildren), this NRB is extended to the Residents Nil-Rate Band (RNRB), which is currently an additional £175,000 for a total of £500,000.
In the case of married couples, on first death the estate is inherited by the surviving spouse then the NRB and RNRB can be transferred to the surviving spouse to be claimed on their death.
It is important to note, however, that where the total value of an estate exceeds £2 million the RNRB is subject to tapering, whereby the RNRB is reduced by £1 for every £2 over £2 million.
For example, an estate worth £2.1 million is £100,000 over the £2 million tapering threshold.. As a result, the RNRB on this estate will reduce by £50,000 from £175,000 to £125,000.
This means that for a sole estate worth over £2.35m, or a joint estate of over £2.7m, the RNRB will not be available.
How to reduce your IHT liability
- Gifting assets
Regularly gifting, within the allowances of HMRC and with awareness of the 7-year rule, can reduce the taxable value of your estate.
- Trusts and Estate planning
Establishing trusts can help to protect your assets and pass wealth efficiently to beneficiaries.
- Pension planning
Currently, pension funds exist outside of your estate, meaning that wealth passed on through your pension is tax-free. However, this will no longer be the case as of April 2027.
At Cooper Associates Wealth Management, we can guide you through the intricacies and technicalities of estate planning, ensuring your wealth is maintained for your loved ones to eventually inherit.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The levels and bases of taxation and reliefs from taxation can change at any time and are dependent on individual circumstances.
Protecting your wealth and your lifestyle
For many, our expenditure grows alongside our income. For those earning higher incomes, monthly expenditure can be substantial, and safeguarding your financial situation against unexpected life events is crucial. Unfortunately, many people overlook personal protection products, which include:
- Income Protection Insurance
Income protection allows you to secure your financial stability should a situation arise whereby you are unable to work, either through illness or injury.
- Critical Illness Cover and Life Insurance
Essential for those looking to protect their family should you pass away or fall terminally ill.
- Comprehensive financial planning
Regularly reviewing your finances allows you to adapt to major life changes, such as growing or changing family dynamics, and market fluctuations.
Why work with a Wealth Management firm?
Making a high income effectively requires expertise across multiple areas, including tax planning, investment management and estate planning. Working with a Cooper Associates Wealth Management adviser offers:
- Personalised Financial Strategies
Our advisers will work alongside you, providing advice and tailoring strategies that align with your unique goals and financial situation.
- Expert Investment Management
Our advisers provide professional portfolio management, helping to maximise your returns while minimising your risk.
- Comprehensive Tax Planning
An expert financial adviser can help to create effective financial structuring, ensuring maximum tax-efficiency for your income.
- Estate and Legacy Planning
Cooper Associate Wealth Management will help you to pass on wealth to your beneficiaries in the most efficient way possible, retaining your wealth for future generations.
Earning over £100,000 provides fantastic financial opportunities, but without careful planning, you may not be making the most of your income. By implementing smart tax strategies, investing wisely, protecting your wealth, and planning for the future, you can secure long-term financial success.
Partnering with Cooper Associates Wealth Management ensures that you have expert guidance to navigate financial complexities, helping you achieve financial efficiency and long-term prosperity.
Reach out today to learn more about how we can help your money work for you.
